AFR Statement: The House Puts Its Seal of Approval on Discriminatory Auto Lending

An unconscionable piece of legislation was approved by the House of Representatives today.

Supporters of the “Reforming CFPB Indirect Auto Financing Guidance Act,” which passed by a vote of 332 to 96, have tried to hide behind a smokescreen of baseless questions and false claims supplied to them by industry lobbyists. But the clear intent of this bill is to block the Consumer Financial Protection Bureau (CFPB) from taking action to combat lending practices that lead to African-American as well as Hispanic and Asian-American borrowers being charged higher interest rates on auto loans.

The problem is both longstanding and well-documented. While car dealers and their lobbyists have criticized the CFPB for relying (as is in fact customary in this context) on indirect evidence of race, multiple other studies, including some based on the kind of direct evidence the Bureau lacked, have reached the same conclusion. In some cases, African-American car buyers have paid many hundreds of dollars more in loan fees than white car buyers.

This pattern of discrimination reflects a system of hidden kickbacks that allow auto dealers to profit by charging more interest than a customer would qualify for based on creditworthiness alone. Car dealers deserve to be compensated for helping people arrange loans. But a form of compensation that encourages them to charge some customers extra and produces consistently discriminatory results violates basic principles of fairness as well as the equal credit laws.